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Windows revenue takes another bad beating

Gregg Keizer | July 24, 2015
Microsoft on Tuesday said that Windows revenue again declined by double digits, the third straight such quarter, with sales of licenses to computer makers down 22 percent from the same period last year.

Microsoft building
Credit: Amit Chattopadhyay

Microsoft on Tuesday said that Windows revenue again declined by double digits, the third straight such quarter, with sales of licenses to computer makers down 22 percent from the same period last year.

For the June quarter, Windows revenue from OEMs (original equipment manufacturers) was off $683 million relative to the same three-month span in 2014, making the decline for the fiscal year -- Microsoft's ended on June 30 -- approximately $1.9 billion.

The bulk of Windows' revenue comes from sales to OEMs, which pre-load the operating system on PCs, 2-in-1s, tablets and a few smartphone models. In the past, Microsoft has said 65 percent to 72 percent of Windows revenue stemmed from OEM sales.

Second quarter revenue from OEMs was down 27 percent for what Microsoft calls the "non-Pro" category and off 21 percent for the "Pro" class. The terms refer to the kind of Windows license, with non-Pro indicating the OS for consumer PCs and tablets, and Pro for devices targeting businesses. In Windows 10, for instance, the former will be Windows 10 Home while the latter will be Windows 10 Pro.

The declines of both non-Pro and Pro were both slightly larger than for the first quarter of 2015.

Microsoft blamed the consumer licensing downturn on slack in the sales channel as OEMs prepared devices for Windows 10, a 180-degree turn from the prior quarter, when it said the channel was still stuffed with PCs left over from the holidays.

"OEMs tightly managed PC inventory ahead of the Windows 10 launch, particularly in developed markets," said CFO Amy Hood in prepared remarks during the front end of an earnings call with Wall Street Tuesday. "In our view, this is a healthy state for the channel as we head into a transformational launch that starts next week," she added, referring to the July 29 debut of Windows 10.

Hood returned to the scaled-back OEM inventories when she responded to a question about whether Windows 10 would make up some of its second-quarter declines caused by the emptying retail sales channel. "Before every launch, we tend to have a tightening in the channel as they prepare and run reasonably lean," Hood answered. "This is a healthy state. It's within the range of normal."

Meanwhile, Hood said Pro license revenue was still hamstrung by the tough comparisons in 2014 when sales of business PCs jumped as companies purged Windows XP -- which was retired in April of that year -- from their organizations. Microsoft has used XP as the whipping boy for the last several reporting periods, and gave the 2001 OS a few more licks Tuesday.

 

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